Confirmed. As soon as I edited the ch1.html to fix the link href, the styling showed right up in Preview.
The corrected code as mentioned earlier in this thread by jackie_w:
Code:
<link rel="stylesheet" type="text/css" href="../Styles/TSOW.css"/>
Makes everything work. This is something that Reports or epubcheck would have detected.
In the future it would probably be easier to highlight ch1.html in the BookBrowser and right click and select Link Stylesheets... would probably be a safer way to make proper links if you are unsure about the exact href needed.